Let’s say we all agree that we want to make the world more equitable and inclusive.
And we, as sourcing and procurement leaders, the people who are on the hook for our organizational spending, feel like we have a role to play in achieving this goal. Currently, the lever we most often pull is creating and managing a supplier diversity program. A diverse organization is defined as a company that is 51% owned and operated by a historically underrepresented or underserved group. Our reasoning for these programs can span from “It’s the right thing to do” to “We get business value” and “It’s required by law.” But when you start to do the math, it’s just a small slice of the impact that sourcing and procurement leaders can make.
Let’s break it down. On average, supplier diversity is 5% of company addressable spend, with a good program (excluding small business) expanding beyond 11% of addressable spend. Ballpark, organizational spend can be calculated with the pareto principal, with 80% of spend being with the top 20% of suppliers, and the bottom 20% of spend fragmented across 80% of suppliers. For the sake of simplicity, let’s say all 5% of diverse spend is all strategic (shown in the figure below). Conservative estimate: that leaves 75% of our strategic spend, with the 19% of our supply base that is highest paid with no requirements for diversity.
The people who know supplier diversity will say, “Andrea, that’s why we have tier 2 spending!” I hear you. But if we think about the influence of one sourcing and procurement leader’s spend, we are just doing the same calculation with even smaller percentages.
How can companies make a bigger impact? It comes down to influencing the workforce diversity of your largest-spend suppliers.
Helping High-Spend Suppliers to be More Diverse
If sourcing and procurement leaders influence their high-spend suppliers to hire and promote more diversity within their companies, then, as just one function, we are creating an ecosystem of equity and inclusion and creating more opportunities for people who normally wouldn’t have had them.
But where do you start?
First, evaluate the DEI maturity of your own organization. Gather data on your workforce diversity representation and practices in place to create opportunities for underrepresented talent, to drive community engagement and to encourage stakeholder commitment (see the figure below).
Why? Knowing our practices allows us to understand what we can ask of our suppliers.
Second, assess the DEI maturity of your high-spend suppliers. For incoming suppliers, request details on the potential suppliers’ posture towards DEI leveraging a similar questionnaire used in your self-assessment (see figure above). For current suppliers, it will take a strong relationship and trust for them to divulge this information, but there are different types of tools available that range in capability to help automate the process, such as EcoVadis, SupplyHive, Privva and SupplyShift. Be transparent with suppliers on how you plan to use the information.
Why? You can’t set goals or track progress unless you know where you are starting from.
Third, analyze the collected information and create a strategy of where to concentrate your time and on what areas. For focus, prioritize the suppliers who are immature and willing to grow. Where can your company play a role in their ambitions? For areas, brainstorm the unique capabilities your organization has to offer your supply base. It’s also OK to go on a journey together. To get started, sourcing and procurement leaders may start with updating their supplier code of conduct to include information on DEI such as Johnson & Johnson, BlackRock and Boeing. From there, they can identify the issues they want to focus on (such as inclusivity in recruiting, learning and development, benefits, etc.). Be sure to track progress to ensure the longevity of the program.
Why? Because this is the role that procurement can play in advancing DEI.
Thank you sourcing and procurement leaders for staying on this DEI journey with me.
Sr Director, Advisory
Gartner Supply Chain
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